Many employers offer their employees various types of bonuses—including
performance awards, gain-sharing systems, and profit sharing. While bonuses
are generally used to reward performance, awards are not directly tied to
job performance and are usually offered for perfect attendance, for providing
new hire referrals, to recognize an outstanding employee, to motivate employees
to work safely, or to reward employee suggestions. There are various legal
and tax considerations for employers giving awards and bonuses to their employees.
Promised bonuses may be construed as contracts by the courts, while the Fair
Labor Standards Act (FLSA) requires employers to count nondiscretionary
bonuses in an employee's regular rate of pay for the purpose of calculating
overtime.